Proposed Rule Summary

NCUA Revised Overhead Transfer Rate Methodology

Prepared by NASCUS Legislative & Regulatory Affairs Department
July 2017

NCUA has proposed revisions to its Overhead Transfer Rate Methodology (OTR) which would streamline the formula for determining how much of NCUA’s operating expenses should be allocated to the National Credit Union Share Insurance fund (NCUSIF).

In January, 2016, NCUA solicited comment on its OTR Methodology. The agency received 40 comments all of which were critical of NCUA’s methodology. In particular, commenters were critical  of NCUA’s classification of all of its safety and soundness examination work in federal credit unions (FCUs) as solely related to the insurance fund and therefore 100% allocated to the NCUSIF.

As a result of those comments, and a comprehensive internal review of the OTR, NCUA is proposing changes to its methodology. NCUA notes that applying its proposed OTR changes to the current budget would result in an OTR of 60% instead of the current 67.7%.

NCUA’s proposed revised OTR Methodology may be read here. The proposed revised OTR Methodology is open for comment until August 29, 2017.

NCUA is the chartering authority of FCUs, akin to the Office of the Comptroller of the Currency (OCC) for national banks, and the state regulator for state chartered credit union and state chartered banks. NCUA also administers the NCUSIF for all federally insured credit unions, akin to the Federal Deposit Insurance Corporation (FDIC) for banks. To fund its operations, NCUA allocates its expenses to 2 sources: 1) Operating fees charged to FCUs as the FCU chartering authority; and 2) the OTR charged to the NCUSIF. In 2003, NCUA adopted the methodology it used, which has resulted in increasing OTR rates in excess of 70% of NCUA funding coming from the NCUSIF until last year’s reduction to 67.7%.

NCUA responded to comments criticizing its existing OTR methodology in the preamble of this new proposal. Although NCUA has ultimately adopted some of the recommendations in the new proposed methodology, the agency stressed that it believes there is little statutory support for the assertion that the agency has safety and soundness responsibilities as a chartering authority. In fact, NCUA stresses that the words safety and soundness only appear twice in Title I, but appear 19 times in Title II.

Simplifying the OTR Methodology to Improve Transparency
NCUA proposes to enhance the “transparency” of the OTR by simplifying the methodology. While retaining a formula driven approach, NCUA proposes the following changes:

  • Time spent examining and supervising FCUs is allocated as 50% insurance related
  • The 50% allocation approximates a supervision program design where NCUA would alternate examinations, and/or conduct joint examinations, between its insurance function and its prudential regulator function if it were separate entities.

  • All time and costs NCUA spends supervising or evaluating the risks posed by FISCUs or other entities such as vendors and CUSOs is allocated as 100%  percent insurance related

    NCUA states that the 100% allocation reflects that fact that NCUA has no chartering authority concerns with FISCUs, CUSOs, or vendors.

  • Time and costs related to NCUA’s role as charterer and enforcer of consumer protection and other noninsurance based laws governing the operation of credit unions (like field of membership requirements) are allocated as 0% insurance related

    NCUA notes that as agency responsible for chartering FCUs and enforcing non-insurance related laws governing how credit unions operate in the marketplace, these costs are properly allocated to its role as charterer/ prudential regulator.

  • Time and costs related to NCUA’s role in administering federal share insurance and the Share Insurance Fund are allocated as 100% insurance related

    NCUA’s administration of the NCUSIF includes its duties liquidating credit unions, managing insured share payouts, and other resolution activities.

NCUA would use the above principles to categorize hours allocated in it budget in order to formulate a portion of the OTR. NCUA would also broadly characterize percentages allocated to the NCUSIF from each of its Program Offices as follows:

  • A weighted average allocation factor of 60% for the following offices:
    • NCUA Board
    • Executive Director
    • General Counsel
    • Chief Financial Officer
    • Chief Information Officer
    • Chief Economist
    • Human Resources
    • Examination and Insurance
    • Inspector General
    • Minority and Women Inclusion
    • Public and Congressional Affairs
    • Continuity and Security Management
  • NCUA Regional Offices and ONES is allocated at 61%
  • Asset Management Assistance Center (AMAC) 100%
  • Office of Consumer Financial Protection and Access 0%
  •  Office of Small Credit Union Initiatives 60%

In addition to the proposed revised OTR methodology, NCUA proposes to adopt the following OTR related processes:

  • Seek comment through the Federal Register on the OTR methodology at least every 3 years, and whenever NCUA seeks to change the OTR methodology
  • Maintain the staff delegation to administer the OTR methodology
  • Require public board briefings every year and post all related materials to NCUA’s Web site
  • For future rulemaking, indicate the proposed regulation is based on Title I, Title II, and/or Title III of the FCUA and seek comment on that determination